It's not just iTunes or Amazon that are driving music stores out of Manhattan, it's also the housing market which looks to squeeze astronomical amounts of money from every business there so that only nationwide chains can afford it (though even Starbucks is having trouble doing that nowadays). The latest example is Downtown Music Gallery, a veritable Gotham institution that's facing insane rate hikes. Here's a WNBC video about the story though DMG itself notes that the rent is going up to $20,000 a month (!!!), which is double the amount that the note in the story.
What's also kind of surprising (and somewhat depressing) is that they also note that the Times Square Virgin Megastore will be gone soon too- that's sad not only because there's now less reason to mill around the area but also because the store itself seemed to have the right idea by diversifying what they sold (including videos, games, clothing) to keep on top of the game. If even that strategy doesn't work for them, you gotta fear for other smaller music stores who are trying the same thing to stay open.